Financial News en-US Save More by Avoiding Multiple Bank Accounts <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/save-more-by-avoiding-multiple-bank-accounts" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="piggy bank" title="piggy bank" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Want to save more? Keep it simple.</p> <p>Conventional wisdom holds that people should spread savings across different accounts, and the typical American has multiple checking and savings and other types of financial accounts. However, they're more likely to save more with just one savings account, according to a new study by a University of Kansas researcher. (See also: <a href="" target="_blank">Zen and the Art of Hiding Money</a>)</p> <p>People save more if they have just one account compared to multiple checking and savings accounts, according to Kansas University assistant professor Promothesh Chatterjee.</p> <p>&quot;Nowadays, the average American has multiple liquid accounts, typically a combination of checking and savings accounts,&quot; he said in a <a href="" target="_blank">press release</a>. &quot;But our research finds this is the wrong strategy to encourage saving. We find that individuals are more likely to save if they have only one primary account, rather than many accounts.&quot;</p> <h2>Banking Implications</h2> <p>His research has implications for accepted banking practices and national policies. Banks frequently offer several accounts to new clients, but the findings argue against that practice.</p> <p>Americans save next to nothing &mdash; the current national savings rate is estimated at 5%. And the inability to save cuts across income and educational levels.</p> <p>&quot;Given that context, this type of research is important to lots of people,&quot; Chatterjee said.</p> <p>Why does having several accounts encourage people to save less?</p> <blockquote><p>Utilizing work on motivated reasoning and fuzzy-trace theory, we suggest that multiple accounts engender fuzzy gist representations, making it easier for people to generate justifications to support their desired spending decisions. However, a single account reduces the latitude for distortion and hinders generation of justifications to support desirable spending decisions.</p> </blockquote> <h2>Fuzzy Savings</h2> <p>In other words, people with <a href="" target="_blank">more accounts lack a clear idea</a> of how much they have saved and use that muddled picture to rationalize their spending decisions. We feel good about ourselves over the long-term when we save, but we feel good right away when we spend, which prompts us to find justifications to spend.</p> <p>Simply put, if you have different savings accounts, it's easy to convince yourself that you have a ton of savings. If you have it all in one place, you can plainly see what you have &mdash; or don't have.</p> <p>Those who are opposed to consolidating accounts, according to the research, can at least try using <a href="" target="_blank">software programs that add up different accounts</a>, allowing users to see the total in one place.</p> <p>His research used four separate studies with a total of 566 participants who had the opportunity to earn, spend, and save money. The results were published in the May 2013 issue of the journal &quot;Organizational Behavior and Human Decision Processes.&quot;</p> <p>The students participating in the study earned money for doing tasks on a computer, and then had chances to buy items, such as university T-shirts, notebooks, and a computer mouse, or add money to their savings, according to a <a href="" target="_blank">New York Times story</a> on the research. Those who kept earnings in a single account saved more than those with multiple accounts. The issue was not their mathematical abilities, but rather their motivation, Chatterjee said.</p> <h2>Targeted Accounts for Saving?</h2> <p>Others disagree and argue that using <a href="" target="_blank">targeted savings accounts</a> is the best way to accumulate savings.</p> <p>Different savings accounts &mdash; for example for emergencies, a new car, and a vacation &mdash; offer a motivational tool for saving for specific goals, writes one proponent of <a href="" target="_blank">targeted savings accounts</a>, J.D. Roth, founder of website Get Rich Slowly and author of &quot;Your Money: The Missing Manual.&quot;</p> <p>When savings are combined, it's easy to lose track of how much you've saved for each goal and use money for one goal to pay for another use, he says, adding that online savings accounts offer higher yields and let customers split their funds into subaccounts and even name them.</p> <p><em>Do you use multiple accounts to manage your savings or just one? What works best for you in terms of reaching your savings goals?</em></p> <a href="" class="sharethis-link" title="Save More by Avoiding Multiple Bank Accounts" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Michael Kling</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Banking Budgeting Financial News bank accounts saving strategies savings accounts Mon, 17 Jun 2013 09:48:33 +0000 Michael Kling 977910 at What I Miss About the Recession <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-i-miss-about-the-recession" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="recession bargain" title="recession bargain" class="imagecache imagecache-250w" width="250" height="187" /></a> </div> </div> </div> <p>The recent &quot;Great Recession&quot; was officially deemed to be over in 2009, but it is only recently that the economic recovery seems to have really picked up speed. While it is nice to see the stock market go up and the unemployment rate go down, I do miss a few things about the recessionary years. I'm not actually looking forward to the next recession, of course, but when it comes (and it will, some time), here's what I'll be looking forward to more of. (See also:&nbsp;<a href="">Preparing for a Recession</a>)</p> <h2>Less Traffic</h2> <p>Lately I have definitely felt that traffic has increased during commute hours. It is great that more people are getting jobs, but I do miss the shorter commute times and less congested roads. Apparently the increase in traffic is happening all around the country, and the National Safety Council reported the <a target="_blank" href="">first increase in traffic related fatalities in years. </a></p> <h2>Shorter Lines</h2> <p>During the recession we rarely had to wait for a spot at a restaurant, but now that is very common. Restaurants that did not need a reservation during the recession are bustling once again. It is great to see establishments have more business, but it was nice to eat in sparsely populated dining rooms where it was easier to hear your friends across the table. There were also shorter lines at many malls and parks.</p> <h2>Bargains</h2> <p>It was much easier to find a bargain during the recession. You could negotiate down the price of almost everything, <a target="_blank" href="">including rent</a>. Hotels and travel were also cheap, and there were more restaurant coupons than I could use.</p> <p>Lately I have definitely seen fewer sales and coupons and an increase in prices on most goods and services. Large ticket items such as furniture and real estate were being sold at below replacement cost during the last recession, but now it is much more difficult to find a bargain that good.</p> <h2>Frugality and Saving</h2> <p>In the last few years everyone talked about saving instead of buying that next big thing. The frugal people were suddenly not so crazy!</p> <p>Now it seems that the tide is turning, and saving money is beginning to be uncool again. The <a href="">zero interest environment</a> does not help the savers' argument at all, and there seems to be less urgency for everyone to save as a whole. The funny thing is that saving during the lean years when you have less income is much harder than saving during the flush years. I do miss that more people cared about saving money during the recession, and I hope they realize that they should try to save more now to prepare for the next recession.</p> <p>There are many things about the last few years that were not very nice, but I definitely saw the brighter side of the worst economy since World War II. I hope some of you were able to get some great bargains that you could use for years to come, and that you are keeping up those <a href="">good frugal habits</a> you have learned. In the next recession those who have cash will have many more choices than those who don't.</p> <p><em>What do you miss about the recession?</em></p> <a href="" class="sharethis-link" title="What I Miss About the Recession" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Xin Lu</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News bargains Economy habits recession Fri, 29 Mar 2013 09:48:30 +0000 Xin Lu 971476 at Boost Your Retirement Savings: Avoid 401(k) Fees <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/boost-your-retirement-savings-avoid-401k-fees" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Guy with paperwork" title="Guy with paperwork" class="imagecache imagecache-250w" width="250" height="157" /></a> </div> </div> </div> <p>You might not have noticed if your 401(k) plan has been charging exorbitant fees for accounting, record keeping, legal work, management, or for any number of dubious reasons. In fact, 7 out of 10 participants don't know they pay fees to their 401(k) plan provider, according to an <a target="_blank" href="">AARP survey</a>. When told of the fees, 6 in 10 didn't know how much they pay, and almost a third said they do not feel knowledgeable about the impact fees have on their retirement savings. (See also: <a href="">How to Make the Most of Your 401(k)</a>)</p> <p>A single fee may not be much, but they certainly add up over time and cut into your hard-earned retirement savings. Fees for a median-income two-earner family can reach almost $155,000 and consume nearly a third of the workers' investment returns over a lifetime, warns Demos, a progressive think tank. <a target="_blank" href="">According to its calculations</a>, a family with each partner earning the median income for their gender will pay an average of $154,794 in 401(k) fees over its lifetime.</p> <p>Plan administrators have gotten away with excessive fees because many people don't know about them. Even if you thought to ask, you might have found the information difficult to understand.</p> <p>That is hopefully changing with new rules from the <a target="_blank" href="">Department of Labor</a>. Regulations rolled out this year require 401(k) administrators to clearly spell out any fees and expenses for administrative services, such as legal, accounting, or record keeping.</p> <p>Plan administrators must provide total annual operating expenses as both a percentage of assets and a dollar amount for each $1,000 invested. They also have to provide historical investment returns over the past 1, 5, and 10 years along with returns of similar market indexes for comparisons.</p> <p>Regardless of the new reporting requirements, you can avoid paying high account fees by following a few simple steps.</p> <h2>Go for Low-Fee Options</h2> <p>Unless there's a good reason to pay a higher fee, pick investment options with lower fees. Aggressive stock funds may do well one year but rarely consistently do better than the overall stock market. Plus, their high fees eat into returns.</p> <h2>Use Index Funds</h2> <p>Index funds, which are based on market indexes, have substantially lower management fees than actively managed funds that have administrators picking their stocks or bonds &mdash; usually less than 0.5% compared to 1% or more. And more expensive funds don't return more money than index funds over the long run.</p> <h2>Consider IRAs</h2> <p><a href="">IRAs offer greater investment choices</a> and often lower costs, although you probably should stick with a 401(k) if your employer matches contributions.</p> <h2>Ask for Options</h2> <p>Ask your human resources department or boss for more low-fee options like index funds.</p> <h2>Beware Special Fees</h2> <p>Watch out for fees for any special features, trading costs, and fees associated with insurance products like variable annuities.</p> <h2>Don't Borrow From Your 401(k)</h2> <p>This may entail a service fee. <a href="">Borrowing from your retirement fund</a> is generally bad idea anyway and should only be a last resort.</p> <h2>Use Online Tools</h2> <p>Online tools, such as <a target="_blank" href="">AARP's 401(k) fee calculator</a>, can help you compare costs to other 401(k) providers. If costs seem exorbitant, point that out to your HR department or consider an IRA.</p> <p>Unfortunately, new rules don't require plan providers to show how costs impact your savings over the years or require them to compare their fees to other plan administrators. The hope is that greater knowledge and increased transparency will increase competition and drive down costs.</p> <a href="" class="sharethis-link" title="Boost Your Retirement Savings: Avoid 401(k) Fees" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Michael Kling</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News Investment Retirement 401k account fees retirement planning Thu, 20 Dec 2012 10:48:37 +0000 Michael Kling 959728 at Downside of the Rolling Jubilee <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/downside-of-the-rolling-jubilee" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="hands" title="hands" class="imagecache imagecache-250w" width="250" height="150" /></a> </div> </div> </div> <p>As a media-savvy ploy to shift public opinion on the debt problem, the Rolling Jubilee may be a brilliant PR move. It's probably not much real help for debtors. (See also: <a href="">How Debt Fools People</a>)</p> <p>Are you familiar with the <a href="">Rolling Jubilee</a>? What they do is use donations to buy up distressed debt for pennies on the dollar, then forgive the debt and send the debtor a letter telling him how to get started cleaning up his credit rating.</p> <p>As public relations, this is brilliant. It highlights the way lenders and collection agencies swap these debts around for pennies on the dollar &mdash; but won't let the <em>debtor</em> pay it off for pennies on the dollar. It also engages the public in a discussion on the <a href="">unfairness of our current system of debt</a> and the crushing burden weighing down the poor, the sick, the young, the troubled, and the merely unlucky.</p> <p>As a way of actually relieving debt for actual people, it doesn't do much.</p> <h2>Too Little Help for Too Few People</h2> <p>Any debt that can be bought up for pennies on the dollar is debt that was already long ago written off as uncollectable.</p> <p>That doesn't mean it's not a problem for the debtor. The debt's presence on their credit report probably makes it impossible for the debtor to ever get their finances cleaned up. It doesn't just make it impossible to borrow money; it makes it tougher to find a place to live, find a job, get insurance, even open a bank account. (If that last applies to you, check out my posts <a href="">New Tools for the Unbanked</a> and <a href="">Making Direct Deposit Safe for the Garnished</a>.)</p> <p>It does mean it probably isn't the debtor's biggest problem. Forgiving $1,100 originally charged on some credit card is great, but it does nothing to keep the electricity turned on or stave off foreclosure or cover the health insurance bill.</p> <p>So from the debtor's perspective, it's more a tease than actual help. &quot;Oh joy! Kind strangers have swooped in and solved my eleventh most pressing problem!&quot;</p> <p>It also helps too few people for the debt reduction to have any societal effect. A really sweeping reduction in the amount of debt that all heavily indebted people owed would change the whole economy, unleashing all sorts of activity from people previously trapped by debt. (Unleashing spending, of course, but not just that. It would also free people to be more entrepreneurial, if they didn't have the relentless burden of monthly payments.)</p> <h2>Pernicious Effect on Debt Value</h2> <p>This, I think, is where the Rolling Jubilee does real harm.</p> <p>A lot of the debt that has gone into collections isn't even owed. This can happen a lot of different ways:</p> <ul> <li>A legitimate debt was paid in full, but is still on the books due to an error by the lender.<br /> &nbsp;</li> <li>Debt that was illegitimate from the start, such as money borrowed by an identity thief.<br /> &nbsp;</li> <li>The lender has gotten confused about who owes the money and is dunning the wrong person.<br /> &nbsp;</li> <li>The debt was discharged in bankruptcy.<br /> &nbsp;</li> <li>The debt is disputed, such as when a shoddy product is returned, but the seller refused to credit the account.<br /> &nbsp;</li> <li>The underlying debt is a trivial amount &mdash; a $10 late fee &mdash; but has blown up to a large sum due to additional fees and penalty interest rates.</li> </ul> <p>Most of those cases could be sorted out if the borrower (or supposed borrower) knew their rights. Most could be ended with a simple letter along the lines of, &quot;I don't owe that money. Either send me proof that I'm wrong or quit bugging me.&quot; Sadly, too many borrowers don't know their rights with regard to disputed debts.</p> <p>The problem is, even bogus and disputed debts like these have some value on the secondary market. Debt collectors on the sleazier end of the business will buy debts for, let's say, 5 cents on the dollar. Then they badger the supposed borrowers, trying to get blood out of a stone. If the collection agency can collect 10 cents on the dollar, they're making real money.</p> <p>Once they've gotten what money they can, they'll sell everything on to some even sleazier agency.</p> <p>The danger I see is this &mdash; if the Rolling Jubilee will pay cash for these debts &mdash; especially if they're buying the cheapest ones they can find &mdash; they're rewarding the very people who keep selling on the illegitimate debts. That makes it worth keeping the fake debt &mdash; debt nobody actually owes &mdash; on the books.</p> <p>Anything that makes it more profitable to be sloppy about keeping track of who does and doesn't owe you money is a bad thing.</p> <h2>Still Probably a Positive Force</h2> <p>Despite the fact that the movement will do little good for real debtors, and will do some real harm (by inflating the value of fake debts), I think on balance the Rolling Jubilee is a good thing.</p> <p>I don't expect it will get big enough to be a real factor in the debt market, so the real harm is as limited as the real good it might do. But just by existing, it is advancing the discussion on <a href="">how our society handles debt</a>. That's a big win.</p> <a href="" class="sharethis-link" title="Downside of the Rolling Jubilee" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Philip Brewer</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Consumer Affairs Debt Management Financial News forgiven debt occupy wall street Wed, 28 Nov 2012 11:24:44 +0000 Philip Brewer 958810 at The Housing Market Is Finally Rebounding <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-housing-market-is-finally-rebounding" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="sale sign" title="sale sign" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>The housing market is rebounding. Really.</p> <p>After many premature predictions and optimistic announcements, the housing market has indeed turned a corner. Home prices and sales are up. Foreclosures and mortgage delinquencies are down.</p> <p>Average home prices in the top 20 metro areas were up 1.6% in July from a year ago, according to the S&amp;P/Case Shiller Home Price Indices. All 20 cities in the index reported rising home prices for the third month in a row.</p> <p>&quot;All in all, we are more optimistic about housing. Upbeat trends continue,&quot; said David M. Blitzer at S&amp;P Dow Jones Indices.</p> <p>The median existing-home price, including all housing types, was $183,900 in September, up 11.3% from a year ago, according to the National Association of Realtors. The year-over-year monthly home prices have increased for seven months in a row. The last time that happened was from November 2005 to May 2006.</p> <p>&quot;Despite occasional month-to-month setbacks, we're experiencing a genuine recovery,&quot; said Lawrence Yun, NAR chief economist. &quot;More people are attempting to buy homes than are able to qualify for mortgages, and recent price increases are not deterring buyer interest.&quot; (See also: <a href="">What It Really&nbsp;Costs to&nbsp;Own a Home</a>)</p> <h2>The Buyer's Market Is Over</h2> <p>What's more, the buyer's market may be coming to an end as sentiment begins to favor sellers. A survey by RedFin, a technology-based real estate brokerage firm, showed that homebuyers believe the market may be shifting against them. Out of 982 homebuyers polled this summer, 46% said they believe that now is a good time to buy. That was down from 56% in the first quarter and 48% in the second quarter. Thirty-two percent think now is a good time to sell, up from 13% in the first quarter and 28% in the second quarter.</p> <p>Importantly, many homebuyers, 61%, believe home prices will increase, up from 32% in the first quarter. More buyers are coming across competition or even bidding wars for a limited number of homes being sold &mdash; 71% of respondents reported encountering competition on at least one offer.</p> <p>Homes are also selling faster. The median time on the market in September dropped 30.7% from 101 days in September 2011, another indication that housing has strengthened.</p> <h2>Too Many Buyers for Homes</h2> <p>The problem for home buyers is the shortage of homes being sold. In parts of the West, the shortage is especially acute, Yun said. The number of existing homes listed for sale fell 3.3% to 2.32 million at the end of September. That's down 20% from a year ago.</p> <p>Fewer homes being sold means rising prices, a trend that will accelerate unless home builders ramp up construction fast, Yun said.</p> <p>Why the shortage? Homeowners who bought their homes before the housing bubble bust are unwilling to sell now and take a loss. Homebuilders all but stopped home construction during the recession, and a wave of foreclosures hitting the market has failed to materialize.</p> <h2>Home Buying Is for the Fast and Ready</h2> <p>Real estate agents advise home buyers &mdash; don't fret about home price trends. If you love a house and are comfortable with the mortgage payments, make an offer.</p> <p>If you want to buy a home, don't keep waiting in an attempt to &quot;<a href="">wait for the bottom</a>.&quot; By the time you've concluded home prices have hit bottom, they'll probably already be rising. And even if prices do fall in your area, interest rates may rise. That will make mortgages more expensive, defeating the purpose of seeking affordable housing.</p> <p>Don't be too picky. You might not find your dream house, especially with fewer homes on the market than potential home buyers. Don't worry about appliances, colors of the walls, or weeds in the yard. You can always replace a refrigerator and paint walls latter.</p> <p>Be ready and fast. Obtain <a href="">mortgage preapproval</a>. Submit your financial documentation to a lender to get preapproval for a maximum home loan amount. Get to know the neighborhood where you're house hunting. Learn about multiple-offer situations and plan out what you'll do.&nbsp;</p> <h2>Should You Buy a House Now?</h2> <p>So should you should you rush to by a home before home prices increase even more? It depends.</p> <p>Because real estate is local, prices in your area might not follow national trends or the trend in a nearby metro area. Examine local home values when you're home shopping, not national or regional price indexes.</p> <p>Regardless of the home price outlook, before you jump into home buying, your personal and career situation should be settled enough for you to stay put for at least a few years. Buying a home is not like speculating in gold or stocks. You can sell a commodity like a stock fairly easily, but when you buy real estate, you pay an assortment of mortgage closing costs and fees. When you sell, you pay the real estate agent a commission. For that reason, you should plan to keep the property for at least several years to make the investment worthwhile.</p> <p>Your financial house, so to speak, should be in order, your credit good enough to obtain a favorable home loan rate, and a savings large enough for a down payment &mdash; ideally at least 10% but ideally 20% to avoid private mortgage insurance, which insures the lender and brings no benefit to you.</p> <p>You should be ready to pay for maintenance and repairs or to <a href="">fix things yourself</a>. Unlike a renter who calls the landlord when a faucet leaks, you'll be responsible for mowing the lawn and fixing anything that breaks.</p> <a href="" class="sharethis-link" title="The Housing Market Is Finally Rebounding" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Michael Kling</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News Real Estate and Housing buying a house foreclosures housing market Fri, 16 Nov 2012 10:36:50 +0000 Michael Kling 955599 at Retirement: Not Just for People? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/retirement-not-just-for-people" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="man by beach" title="man by beach" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>This has always been true &mdash; almost all the economic value of a typical household is the future value of its members' labor.</p> <p>With a little foresight, this will change over time. As your career progresses, you build up savings and investments, with the goal of replacing your income from labor with income from financial assets, preparing for some future time when you can no longer work. You accumulate other assets as well. Household goods, once purchased, continue to provide value for years or decades. If you pay off your mortgage (rather than doing a series of cash-out refinances), you eventually own a house you can live in. (See also:&nbsp;<a href="">What It Really&nbsp;Costs to Own a Home</a>)</p> <p>A lot of what I've written here at Wise Bread has been to advocate for this shift. To advocate for making it early. To advocate for making it consciously.</p> <p>One thing that I hadn't really thought about until recently, is that corporations have been making much the same shift.</p> <p>Until around 1980, the economic value of a corporation was almost entirely the value of its productive capacity. Over the next decade or two, that changed. Instead of investing in plant and equipment, corporations found it more profitable to set up financing arms, to lend their customers the money to buy their products. During the 1990s and early 2000s, companies like General Electric and General Motors found that their money-lending businesses made much more money than their manufacturing businesses.</p> <p>This had a lot of negative side effects. It led to the elimination of good manufacturing jobs, only partially offset by the creation of finance jobs. This shift, as much as off-shoring, was what eliminated six million manufacturing jobs over the past 20 years.</p> <p>It also made corporations much less answerable to their customers. Before, companies either produced what people wanted to buy, or else their profits suffered. After this shift, it scarcely mattered what corporations produced, because so much of their income was <a href="">investment income</a>.</p> <p>Basically, the corporations could retire.</p> <p>This shift only benefits the management &mdash; they can now report reliable profits without having to actually do any work.</p> <p>It might be nice if the harmful effects on workers would be enough to promote change, but I don't think that's going to happen. Fortunately, this whole thing is also a negative for shareholders &mdash; the corporate structure doesn't provide any value-add for the shareholders. (Really, it's of negative value &mdash; another layer of expense and another layer of taxation.) The shareholders would be much better off simply getting their money back and investing it themselves.</p> <p>So, although the negative side effects are large, I don't think they're permanent. I foresee an end to the days of retired corporations. If you own stock in such a corporation, you might consider whether your money would be better off in a <a href="">company that actually does or makes something</a>.</p> <a href="" class="sharethis-link" title="Retirement: Not Just for People?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Philip Brewer</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News Investment Retirement corporations investment income Manufacturing Tue, 18 Sep 2012 10:00:43 +0000 Philip Brewer 954552 at What Is the Fiscal Cliff? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-is-the-fiscal-cliff" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Cliff" title="Cliff" class="imagecache imagecache-250w" width="250" height="145" /></a> </div> </div> </div> <p>If you&rsquo;ve been surfing the web lately, you&rsquo;ve probably seen the phrase &ldquo;fiscal cliff&rdquo; thrown around on finance, business, and political sites.</p> <p>The fiscal cliff refers to a series of fiscal policy changes set to take place at the end of 2012. While each are worrisome alone, the combination of fiscal and political changes has many concerned that the effects could snowball, resulting in a severe slowdown of the economic recovery. The November Presidential Election, which further complicates matters. Given the seeming inability of both parties to work together, it seems unlikely that either Democrats or Republicans would be willing to strike a deal on fiscal issues before the 2012 election plays out.</p> <p>Still, there&rsquo;s no reason to consider jumping off that fiscal cliff just yet. It&rsquo;s likely that politicians will strike some sort of compromise at the eleventh hour, and that the Fed may rework the <a href="">Operation Twist program</a> given the economy&rsquo;s uncertainty. But the combination of increased taxes and budget cuts could prove dire for the U.S. economy. While spending cuts would lead to a lower deficit, they could also cause the GDP to contract up to an estimated 1.3% in the first quarter of 2013, according to the Congressional Budget Office. (See also: <a href="">Tax Brackets Explained</a>)</p> <p>Here&rsquo;s an overview (albeit a very condensed version) of what comprises the fiscal cliff.</p> <h2>The Monetary Cliff</h2> <p>The &ldquo;monetary cliff&rdquo; typically refers to the end of the Federal Reserve&rsquo;s &ldquo;Operation Twist&rdquo; program, set to complete at the end of 2012. It&rsquo;s far more complicated than this, but the program essentially consists of the Federal Reserve buying treasuries from 6 to 30 years in duration to keep interest rates low. The concern is that if Operation Twist does in fact end in December of 2012, interest rates could rise, further crippling the economy.</p> <h2>The &quot;Sequester&quot; Backlash</h2> <p>Remember how last year the Federal budget super committee was unable to reach a deal on spending? Well, many of those postponed budget decisions could go into effect at the beginning of 2013.</p> <p>The automatic spending cuts set to kick in on January 2, 2013, would cut 1.2 trillion dollars total in spending. The majority of the cuts are split between defense and domestic spending. In addition, the Federal government will reach the &ldquo;debt ceiling&rdquo; at the end of 2012.</p> <h2>Expiring Tax Breaks and More</h2> <p>Several tax breaks and other benefits are set to expire.</p> <p><strong>The Bush Tax Cuts</strong></p> <p>The expiration of the Bush Tax Cuts could potentially affect taxpayers across the board. This issue is sure to result in some form of gridlock; Republicans are in favor of extending all the tax cuts, while Democrats only want to extend the cuts for those making under $250,000 a year.</p> <p><strong>Emergency Unemployment Benefits End</strong></p> <p>This one is pretty self-explanatory. An end for benefits could result in the <a href="">loss of unemployment income</a> for millions of Americans, many of whom rely on it for bills and living expenses.</p> <p><strong>Payroll Holiday Tax Ends</strong></p> <p>The expiration could result in up to a 2% tax increase for workers.</p> <p><strong>Measures to Protect the Middle Class From AMT (Alternative Minimum Tax)</strong></p> <p>When these expire, middle class families will see a hike in their federal taxes.</p> <p>Things get a lot more complex, but that's the general idea behind the fiscal cliff. Is this another example of fear mongering by the media, or a legitimate economic crisis waiting to happen?</p> <a href="" class="sharethis-link" title="What Is the Fiscal Cliff?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Erin C. O&#039;Neil</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News fiscal cliff inflation rate Tax Break Fri, 06 Jul 2012 10:24:08 +0000 Erin C. O'Neil 938563 at 6 Ways to Vet an IPO Before You Buy <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-to-vet-an-ipo-before-you-buy" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="guys using laptops" title="guys using laptops" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>In the aftermath of the <a href="">Facebook</a> initial public offering (IPO), the web has experienced a deluge of answers to the question &ldquo;What went wrong?&rdquo; What happens when one of the most hyped tech IPOs in recent history doesn&rsquo;t rise to meet investor expectations?</p> <p>For months I&rsquo;ve been advising family and friends against buying Facebook. The reasons were fairly simple. I felt the entire IPO was a matter of style over substance, with little data to back up long-term revenue growth and earnings potential. It was also entirely possible the value of Facebook had peaked, and the IPO was a way for Facebook executives to reap the rewards of the company&rsquo;s riches before an earnings decline. I felt Morgan Stanley, the firm underwriting the IPO, didn&rsquo;t understand how Facebook worked and certainly didn&rsquo;t understand the company. (In fact, rumor has it that over a year ago Morgan Stanley executives had to hire Zuckerberg to give a private tutoring session on how to navigate Facebook.) Hundreds of analysts more experienced and smarter than I am had a different perspective. Advice from media outlets came in droves, promising us the &quot;biggest IPO ever.&quot; Amidst all the frenzy, it became hard to distinguish the public image of Facebook from the public offering being presented.</p> <p>Perhaps the sagest advice came from PIMCO&rsquo;s CEO and co-CIO <a href="">Mohamed A. El-Erian on the Huffington Post</a>, who remarked, &ldquo;&hellip;the manner that our brains have evolved and work may not always result in the best investment decisions.&rdquo;</p> <p>Instead of asking &ldquo;What went wrong?&rdquo; a better question for investors to ask might be &ldquo;How can we prevent this from happening again?&rdquo; Here are five ways to vet an IPO before you buy. (See also: <a href="">5 Killer Free Investment Tools</a>)</p> <h3>1. Check the&nbsp;SEC S-1 Form</h3> <p>All companies are required to file what is called a Form S-1 with the Securities and Exchange Commission (SEC) before an IPO goes into effect. Facebook&rsquo;s can be found <a href="" target="_blank">on the website</a>.</p> <p>The S-1 will contain the meat of the information on a company. It&rsquo;s not exactly light reading, but it will have important data that&rsquo;s well worth a look. Not only does an S-1 contain information on the offering price of the company and estimated par value of the stock, but facts and figures on a company&rsquo;s business plan, long-term growth objectives, and estimated budget. There&rsquo;s a wealth of information to be had on an S-1 form, and it should be considered a &ldquo;must read&rdquo; before any responsible investor even considers purchasing an IPO.</p> <h3>2. Read the Corporate Earnings Report</h3> <p>Companies typically have a portion of their website for &quot;Investor Relations.&quot; Browse carefully, and you should be able to find detailed financial information, often called Quarterly Reports or Annual Reports. Financial statements can provide detailed information on current cash flow and revenue, but more importantly for IPOs, projected cash flow and revenue. Facebook's Investor Relations area can be found on their <a href="">investor subsite</a>.</p> <h3>3. Consider the Underwriter</h3> <p>The firm underwriting the IPO serves several purposes. It prepares a valuation report of the company to be offered and helps to correctly determine the share price. This is usually a big investment firm. In Facebook's case, Morgan Stanley was the underwriter.</p> <p>When considering an IPO, scan the S-1 for mention of the underwriter and ask yourself a few questions. Is it a reputable firm? Do they have a history of accurately pricing IPOs? Do they stand to profit from the success or failure of an IPO?</p> <h3>4. Get Second Opinions</h3> <p>It's human nature to want to be told we're right. But when it comes to investments, try to get a second opinion and listen to people who disagree with you, just to consider an opposing scenario. Listening to other points of view might spark new questions you hadn't thought about, or might confirm your previous opinion. Either way, gather information from a variety of sources to use as informational tools in decision making.</p> <h3>5. Do a Risk-Benefit Analysis (for Yourself)</h3> <p>Ultimately, buying an initial public offering is always risky. Even the most seemingly stable companies can experience an unexpected setback or glitch that lowers their value after investors have bought into an IPO. A risk-benefit analysis involves weighing the risks and benefits of an investment and determining what is right for your individual situation. Remember that there's no market history on share prices for the company you're about to buy into, no way to glean historical data. The fact is that while most people focus on the &quot;get rich quick&quot; aspects of an IPO, it's just as likely that they will lose money. Be realistic about how much money you are willing to invest, and risk, on an IPO purchase. Will you experience buyer's remorse? Can you stand to <a href="">lose part of your investment</a>? In other words, don't bet the farm. It's common sense, but you'd be surprised at how many people forget about risk when they think a big payoff might be in the near future.</p> <a href="" class="sharethis-link" title="6 Ways to Vet an IPO Before You Buy" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Erin C. O&#039;Neil</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News Investment Facebook initial public offering investment research Mon, 28 May 2012 10:36:09 +0000 Erin C. O'Neil 930828 at How Natural Disasters Can Change Pricing Worldwide <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-natural-disasters-can-change-pricing-worldwide" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Recovery workers after a tsumani" title="Recovery workers after a tsumani" class="imagecache imagecache-250w" width="250" height="134" /></a> </div> </div> </div> <p>Millions of natural disasters occur around the world each year, from volcanic eruptions to wildfires to tsunami. As implied by the term &ldquo;disaster,&rdquo; these events can have devastating effects on human life, local economies, and the environment itself. Historically, natural disasters have caused a lot of damage to pricing schemes, as we can see from the following. (See also: <a href="">The Psychology of Pricing</a>)</p> <h2>Earthquakes and Tsunami</h2> <p>With the United States&rsquo; Geological Survey&rsquo;s most recent <a href="">report on earthquakes</a> stating that its National Earthquake Information Centers are detecting up to fifty earthquakes per day (approximately 20,000 per year) and millions more are suspected to occur without detection, it&rsquo;s not surprising to see how earthquakes create not only tremors in the ground, but also in pricing for various goods in the market.</p> <p>Case in point &mdash; the devastating 9.0 earthquake off the coast of Japan that occurred on March 11, 2011. As one of the biggest exporters of technological products in the world, companies based in Japan faced a harrowing situation with the subsequent blackouts and parts shortages correlated to the earthquake and tsunami that struck the region. <a href="">TIME Magazine</a> reported that items such as televisions, PCs, and phones were (and still are) likely to see a rise in prices following the catastrophe. With factories shut down or wiped out altogether, the streamlined creation process for these technologies experienced a severe disruption in wake of these events, and we can see from historical evidence that this isn&rsquo;t the last time an earthquake will lead to a spike in prices due to industrial interruptions.</p> <h2>Global Warming</h2> <p>We&rsquo;ve been hearing about this one for years. From Al Gore&rsquo;s <em>An Inconvenient Truth</em> to the Kyoto Protocol (from which Canada recently withdrew and the United States has yet to ratify), global warming seems to be a major threat posed to our world today. While there are mixed views on the causes and even the very existence of this climate change, one thing is for sure &mdash; the regulations placed on corporations could potentially send prices soaring. This isn&rsquo;t to say these policies are not beneficial &mdash; the debate over whether we should protect the environment or the economy first and foremost will never cease &mdash; but when the operating costs for these companies rise as a result, they are more inclined to pass these costs along to consumers.</p> <p>As a 2009 Forbes article on the <a href="">Cap and Trade Bill</a> stated, politicians in countries across the globe are enacting legislative measures that would require corporations to buy emissions permits for every ton of CO2 generated. While this is a great step towards cleaner, more efficient energy usage, it could also further damage the economy by sending energy prices upward, thus hurting consumers. Regardless of the &ldquo;correct&rdquo; view on the existence and severity of global warming, one thing is for certain &mdash; this will continue to affect price levels for years to come.</p> <h2>Drought</h2> <p>Have you ever read John Steinbeck&rsquo;s <em>The Grapes of Wrath</em>? The Dust Bowl of the 1930s &mdash; during which the story takes place &mdash; was more than just fiction. The droughts and unusually high temperatures during the Great Depression negatively affected thousands of farmers and people who couldn&rsquo;t afford the food prices when the supply diminished, and we continue to see these problems persisting to this very day. The Horn of Africa is currently experiencing its <a href="">worst drought in nearly six decades</a>. Food prices are only making the problem worse for the millions of people in the region, as even staple items such as maize and milk are on the rise. Anyone who has taken an Economics 101 class knows that supply has an inverse relationship with the price of goods, so with less and less food being grown each year, the famine continues to worsen for those who can&rsquo;t afford the surge in <a href="">prices for food</a>.</p> <h2>Torrential Rains</h2> <p>Contrary to a severe dry season, torrential rains can also lead to a terrible supply shock, as seen in the current Norwegian butter crisis. After an uncommonly wet summer season in Norway, the quality of grazing land for the cows diminished, leading to a sharp drop in the availability of this basic dairy good. As with the rest of the supply shortages as seen in other natural disasters listed above, prices have increased for Norwegians who have been waiting weeks for butter imports.</p> <p>Torrential rains can also cause flooding, which generally devalues homes in the area and shuts down <a href="">local businesses</a>, economically hurting both the owners and customers in the region.</p> <p>With the Earth&rsquo;s carrying capacity being stretched to its limits, we are bound to see more natural disasters occurring in the future. With natural disasters comes a loss of life, as well as potentially destructive impacts on pricing in countries around the world. Our governments do what they can to alleviate the hazards before a disaster strikes, but the funding and technology in the status quo isn&rsquo;t enough to prevent them from happening. Ultimately, only our mitigation efforts can be the keys to softening the blow when these catastrophes strike.</p> <a href="" class="sharethis-link" title="How Natural Disasters Can Change Pricing Worldwide" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Kelly Kehoe</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Budgeting Financial News natural disasters rising prices supply and demand Fri, 06 Jan 2012 10:48:18 +0000 Kelly Kehoe 843450 at How to Switch Banks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-switch-banks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="bank building" title="bank building" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>American banks aren't the most lovable of institutions. It's no wonder that the American consumer is sick and tired of low interest rates on savings accounts and sky-high ATM fees, to say nothing of the disappearance of free checking. When all these <a title="new bank fees" href="">price hikes</a> are taking place at mega-banks that received government bailout funds a few years ago, it feels all the more galling.</p> <p>Maybe you have wanted to switch banks for a long time. Maybe it's only just occurring to you now that there are better options out there. Whatever your reasons, you have decided to <a title="Beating Bank Fee Increases" href="">change banks</a>. Whether you choose another mega bank or a local credit union to handle your funds, here's how to swap financial institutions. The process can often take up to two months, but taking your time to properly manage your money is a good thing, so don't rush it. (See also: <a href="" title="7 Banks Still Offering Free Checking and Great Interest Rates">7 Banks Still Offering Free Checking and Great Interest Rates</a>)</p> <h3>1. Choose Your New Bank/Credit Union</h3> <p>You obviously can't close an old account without first having a new place to stash your cash, so decide what factors are most important in your choice of financial institution. For some people, the convenience of large banks is enough to compensate for terrible customer service. For me, that wasn't enough, so when I switched banks, I moved to a credit union. I love my credit union, even though its location isn't always convenient for me.</p> <p>There are many qualities to consider when <a title="choosing a new bank" href="">choosing a new bank</a>, including what kind of ATM fees are involved, whether or not free checking is offered (and all the caveats that go along with that, like a required minimum balance), if they offer free online bill pay &mdash; whatever financial activities are most important to you, check to see if they are possible with your new bank, and how convenient and costly they are.</p> <p>If you share financial accounts with a spouse or other family member, be sure to discuss and consider their needs, as well as your own, when choosing a new bank.</p> <h3>2. Open Your New Account</h3> <p>Once you've settled on a financial institution, march on in and open your new account. You'll want to order checks, even if you think you'll never use them (you'll need them for setting up direct deposit, and it never hurts to have them on hand), a debit card, set up online accounts, and obtain any other paraphernalia that will make your banking experience easier. You'll probably meet with an account manager when you open your account - get their business card and do not be afraid to use your contact as a go-to when you need help with your banking. Having a one-on-one relationship with an account manager at a bank isn't common these days, but if you choose a smaller bank or credit union, having a good relationship with a manager can make your financial life easier.</p> <p>TIP: Don't be pressured into opening a credit card or line of credit with a new bank. Many big banks now won't offer free checking without some kind of connected savings or credit account, because both savings and credit accounts earn interest for the banks.</p> <h3>3. Determine Your New Bank's Fund-Holding Period</h3> <p>Most banks and credit unions will hold deposits from new customers for the sake of &quot;security&quot; until they decide that you are a trustworthy customer. When I opened my bank account at Citibank in Manhattan back in 1999, they actually had a two-week holding period for deposited checks, even business checks. This wasn't mentioned until after I deposited my entire paycheck into my fledgling checking account, whereupon my money was put &quot;on hold&quot;, leaving me with exactly $20 in cash to survive for the next two weeks.</p> <p>Find out if any security holds apply to direct deposit, check deposits, and even cash deposits. When first opening an account, there's no reason to go whole hog and put all your money in at once. Just deposit a couple hundred dollars and let them hang onto it for &quot;security.&quot; Once you've passed their test and the holding period is up, you can start moving your funds into your new account.</p> <h3>4. Set Up Direct Deposit</h3> <p>Work with your company's HR firm to change your direct deposit from the old bank to the new. This might take longer than you think, so find out when the switch will happen. If your HR department requires a blank check from your account to set up direct deposit, be sure to order your checks right away &mdash; they can take up to a couple of weeks to receive.</p> <h3>5. Start Transferring Your Bill Payments</h3> <p>If you use an online bill pay system to pay bills as they are sent to you, you can transfer the accounts over from one online bill pay system to another manually. If you have bills that are automatically deducted from your bank account, like car payments, auto insurance, or a monthly gym membership, you can determine who needs to be notified of your new banking info. Start by exporting the past two months' worth of checking transactions to an Excel spreadsheet, then sorting according to the transaction name. Delete extraneous information and pinpoint the transactions that occur every month. If you use a finance tracking system like, you probably already have a good idea of which transactions will need to be moved to your new bank or credit union.</p> <p>It is possible that you may miss an auto-deduction or two, but not to worry &mdash; debtors will not sit idly by if your scheduled payment fails to go through, so you'll be notified immediately. Make sure to settle any missed payments as soon as you are notified.</p> <h3>6. Transfer Your Debt (if possible)<strong><br /> </strong></h3> <p>What you do with your bank-issued credit cards depends largely on your debt situation. It's entirely possible that you are paying off a large credit debt and aren't able to <a title="credit card balance transfer" href="">transfer the amount to another credit card</a>. If this is the case, and you need to keep your old bank account open in order to make payments to your credit card, things get a little trickier. When I left my old mega bank, I transferred all of my debt to a new personal loan that I took out at my credit union, but not everyone will have that option. If you are leaving your bank partly because your credit card APR has been jacked up to unbearable levels, consider a debt consolidation plan that will allow you to make a single monthly payment on all of your credit cards (and you can make the payment from your new bank account). Most debt consolidation programs can help you get a lower APR on your existing debt. You might also consider applying for a loan from <a title="Lending Club" href="">Lending Club</a>.</p> <p>If you can't move your debt from one card to another, you can at least continue to pay down your debt on a bank-issued credit card, even if you no longer want to hold your primary checking account with the same bank. My <a title="You did WHAT with my SSN?" href="">mortgage is managed by U.S. Bank</a>, an institution that I am not particularly fond of. Even so, I am unable to refinance or move to mortgage to another institution, and so I maintain a checking account (and now a savings account, since U.S. Bank no longer offers free checking accounts without a connected savings account) that part of my paycheck is deposited to every other week. I only deposit enough money to cover my mortgage and to keep the account open; otherwise, I have nothing to do with the bank at all, and all of my primary checking and savings are managed by a local credit union. This simplifies my relationship with a bank that I don't like, but have to deal with.</p> <h3>7. Close Your Old Account</h3> <p>You won't be able to close your old bank account until all pending debits have cleared, so stop using your old debit card and checks once your new account is established. It's a good idea to leave your old account open for about a month while discontinuing its use &mdash; leave a few hundred dollars in the old account, just in case you forgot about the check that you sent your nephew for his birthday. This is also a good way to identify any automatic payments that are being debited from your account (while the account isn't cluttered by your daily spending habits). Be certain to leave enough money in your old account to cover any checks you have written, because the last thing you need is a bounced check ruining things for you. Once all written checks have cleared, close that account down! Banks will try to make this as hard as possible for you &mdash; be polite but firm in your resolve to continue your banking activities elsewhere.</p> <h3>8. Offer Feedback</h3> <p>Don't be afraid to offer feedback to your old institution. If an account manager wants to know why you're leaving their fine financial institution, be certain to give it to them straight. You can explain that the fees were too high, or that you wanted to find a bank that offered an actual interest rate on savings accounts. Maybe the hours aren't convenient for you. Whatever your reason, calmly share it with management. Don't be under any illusions that the banks really care about you (you're small potatoes), but Bank of America's recent <a title="Bank of America's debit card fee" href="">disowning of the $5 debit fee</a> shows that large public outcry can affect institutional policies.</p> <a href="" class="sharethis-link" title="How to Switch Banks" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Andrea Karim</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Banking Financial News bank or credit union change banks i hate my bank move to credit union switch banks Mon, 07 Nov 2011 09:48:20 +0000 Andrea Karim 721849 at Should Conforming Loan Limits Be Increased? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/should-conforming-loan-limits-be-increased-0" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Family with house they just bought" title="Family with house they just bought" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>On October 1st, 2011, the conforming loan limit for loans backed by the FHA, Fannie Mae, and Freddie Mac fell back down to the levels they were at before 2008. Less than a month later, the <a href="">Senate has passed an extension</a> of the law that raised those limits. Now the bill is going to the House for approval. Here is how it may affect you. (See also: <a href="">Guide to Home Loans</a>)</p> <p>First of all, let me explain what a conforming loan is. Basically, a loan is &quot;conforming&quot; if it is smaller than the limit that the FHA, Fannie Mae, or Freddie Mac set. Conforming loans can be purchased by these agencies, so these loans are more liquid, and borrowers with conforming loans qualify for the best mortgage rates. If a loan is larger than that limit, then it would be a &quot;jumbo loan,&quot; and the interest rate is generally a percent or more higher than a conforming loan. Right now over 90% of new home loans are backed by FHA, Fannie Mae, or Freddie Mac, so new house purchasers should know that if their loans are larger than the conforming loan amount, they would be more expensive and less likely to be funded.</p> <p>Fannie Mae and Freddie Mac currently have a conforming loan limit of $417,000 in most areas, and a maximum of $625,500 in high-cost areas for a single-unit residence. FHA loans currently have a conforming loan limit of 95% of the median home price in an area or $625,500, whichever is less. In 2008, the Housing and Economic Recovery Act raised these limits significantly. The maximum loan amount for all the agencies was as high as $729,000, and the FHA loan limit was raised from 95% of the median home price to 125% of the median home price. Basically, now the lawmakers want the loan limits to be back to the limits under the 2008 law.</p> <p>This loan limit issue affects FHA borrowers the most, since the difference in the loan limit in many areas changed more than 30%. FHA buyers typically only bring 3.5% of the home cost to their down payment, so basically the loan limit is the maximum price of the house they are purchasing. The good news for today's buyers is that housing prices have already come down more than 30% since 2008 in many areas, so the change in limit might not be a big deal because many houses are just plain more affordable.</p> <p>The loan limit issue also affects upper-middle-class buyers in high-cost areas. Here in the San Francisco Bay area, there are many upper-middle-class families who look for very basic two-to-three bedroom houses that cost more than $800,000. For these families, they may have to lower their price points by $100,000 or pay thousands of dollars more every year.</p> <p>Personally, I believe that the government should not encourage more debt by raising the limit. If you look at a <a href="">history of the conforming loan limit</a>, then you will see that it was raised drastically during the housing bubble. If large government-backed <a href="">mortgages</a> were not so easy to come by, then people might have bought cheaper homes, and perhaps we would not be in the situation we are in right now. I actually think that these loan limits should be decreased so that the private markets will have to shoulder more loans and more than 90% of the mortgage market is not backed by American taxpayers.</p> <p><em>What do you think? Do you want the loan limits to go back to the 2008 limits? </em></p> <a href="" class="sharethis-link" title="Should Conforming Loan Limits Be Increased? " rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Xin Lu</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News Real Estate and Housing conforming loan limits FHA home loans U.S. Senate Tue, 25 Oct 2011 09:36:14 +0000 Xin Lu 760570 at Why Inflation? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Balloon Inflation" title="Balloon Inflation" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>We know how inflation happens&mdash;excess growth in the money supply. But <em>why</em> does inflation happen? (See also: <a href="">Can a Little Inflation be Good?</a>)</p> <p>Most people have a misunderstanding of inflation, because certain recent inflations&mdash;those of the 1970s in Europe and the United States&mdash;were unusual.</p> <p>The 1970s inflations were largely side-effects: Working to keep their economies running at full speed, central banks boosted the money supply on the theory that accepting a certain amount of inflation would allow the economy to run with a lower level of unemployment. That theory turned out to be false, but that's not the important point. What's important is that &quot;side-effect&quot; inflation is the exception.</p> <p>Most inflation&mdash;going back over hundreds of years and dozens of countries&mdash;is <em>deliberate</em> inflation, inflation produced with a goal: to reduce debt burdens.</p> <p>Most often, the goal is to reduce the burdens of government debt. (Makes sense&mdash;governments control the money supply, and they tend to run up a lot of debt.)</p> <p>Sometimes the goal is to reduce the debt burdens of ordinary folks. This isn't as common, in particular because inflation tends to hurt those with money, and people with money tend to have influence over the government. But, especially in democracies, and especially when society ends up divided between the few (who are very rich) and the many (who are poor and often in debt), the many turn out to have enough influence to call for some inflation to lower debt burdens.</p> <p>Inflation does work for this purpose, but it doesn't work very well.</p> <p>First of all, inflation only reduces the burdens of <em>debts that already exist</em> (and then only debts at a fixed interest rate). That's great for a government with a big public debt, and it's okay for homeowners (if they have fixed-rate mortgages) and recent graduates (if they have student loans at fixed rates), but it actually sucks for anyone who needs to borrow money&mdash;because they're going to face very high interest rates.</p> <p>Inflation also produces all sorts of distortions. It creates phantom profits (where much, all, or even more than all of the gain is just inflation)&mdash;not so bad, except that phantom profits are often taxed just like real ones. It causes suffering because many prices can go up daily, while incomes often go up only annually. It makes it hard to plan for the long term (because you don't know what prices will be tomorrow, let alone 10 years from now).</p> <p>The fundamental problem with inflation is that it fools people&mdash;it obscures true values and that leads people to make bad decisions. They get a good raise, and think they're better off. They see growing sales, and think their business is growing. Only later&mdash;when they see that prices have gone up and that even with the extra money that's come in they're no better off than they were&mdash;do they realize that they'd been misled. And if they made commitments based on that misunderstanding of their real situation, they may be in real trouble.</p> <p>Right at this moment, things rather hang in the balance. As I said, the pressure for inflation is always strongest when the money is in the hands of the few and the many are in debt. Especially in a democracy, that's a dangerous situation.</p> <p>Inflation is terribly pernicious. It's a blunt instrument that does reduce the burdens of debt, but does so in a crude fashion, with winners and losers selected for no more reason that that they had already borrowed (rather than being about to borrow) and that they had borrowed at fixed rates. There are things you can do to reduce the harm that inflation will do on your household economy (check out my post <a href="">How to Live with Inflation</a>), but even better is to avoid inflation.</p> <p>Perhaps knowing why inflation happens will help with that.<br /> &nbsp;</p> <a href="" class="sharethis-link" title="Why Inflation?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Philip Brewer</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News debt deflation Economy inflation Wed, 12 Oct 2011 10:24:12 +0000 Philip Brewer 745459 at Occupy Wall Street, the 99%, and All That <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/occupy-wall-street-the-99-and-all-that" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Man at an Occupy Wall Street protest" title="Man at an Occupy Wall Street protest" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>The Occupy Wall Street movement does <em>not</em> lack a unified message. What they're saying is perfectly clear to me. (See also: <a href="">Peak Debt and Income</a>)</p> <p>To understand Occupy Wall Street, start with the people who say &quot;<a href="">We are the 99 percent</a>.&quot; (That link goes to a site with statements from people who aren't in the top 1% of wealth and income. Pretty much by definition, that's just about everybody.)</p> <p>To understand the 99%, begin with recognizing that their incomes have been stagnant for 40 years &mdash; a period during which the income of the top 1% has soared. Also, recognize the reason this happened &mdash; the reason things changed from prior decades during which the middle class got their full share of economic growth &mdash; is a long list of changes to laws, regulations, common practices, policies, and procedures.</p> <p>What the 99% want is economic justice. But they don't have a single &quot;demand,&quot; because there's no single thing that produced this result. (See above:&nbsp;long list of changes.) Instead, they see a l<a href="">ong list of things that are wrong</a>:</p> <ul> <li>An <a href="">unfair foreclosure</a> process</li> <li><a href="">Government bailouts</a> of big business (with the money ending up in the hands of the same executives that put the company at risk in the first place)</li> <li>Unrelenting efforts to strip workers of the rights to <a href="">organize</a> and to have a safe workplace</li> <li>A system of higher education that saddles students with a <a href="">decade of debt</a></li> <li>A&nbsp;<a href="">healthcare system</a> that bankrupts people without insurance &mdash; and denies insurance to anyone who's sick</li> </ul> <p>That's what the Occupy Wall Street movement is trying to fix &mdash;&nbsp;a political and economic system where the extremely wealthy (and the corporations they own) buy laws and regulations to ensure that future economic growth (like the economic growth of the past 40 years) continues to flow into the hands of the 1%.</p> <p>All of my posts are aimed at helping people live large on a small budget. Some are about tactics (how to spend less, how to get more for what you spend), some are about strategy (how to design your life for living large), and some are about understanding the economy (to help you do your own strategic and tactical thinking). I'd like to think this post fits into that third category.</p> <a href="" class="sharethis-link" title="Occupy Wall Street, the 99%, and All That" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Philip Brewer</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News economic justice the 99 percent Wall Street Fri, 07 Oct 2011 15:56:45 +0000 Philip Brewer 736623 at Is Bank of America’s $5 Monthly Debit Card Fee Just the Beginning? <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-bank-of-america-s-5-monthly-debit-card-fee-just-the-beginning" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Man at a Bank of America ATM" title="Man at a Bank of America ATM" class="imagecache imagecache-250w" width="250" height="157" /></a> </div> </div> </div> <p>In a word, yes.</p> <p>Consider this phrase &mdash; &ldquo;Take money from businesses, they&rsquo;ll just turn around and take it from the customers.&rdquo;</p> <p>I&rsquo;ve heard that, and many variations of it, several times over the last few years. Now it looks like it&rsquo;s coming true for all of us.</p> <p>It&rsquo;s no secret that banks make a lot of their money from fees. Whether it&rsquo;s late payment penalties, interest rate hikes, ATM fees, money-wiring transactions, or any number of other transactions, fees are the bread and butter of the banking industry.</p> <p>These fees seemed to be going away, or getting vastly reduced, as banks tried to outdo each other in the battle for your hard-earned money. Free checking was suddenly the norm, and then banks would offer even more incentives (free iPods, luggage, shotguns, and good old cash) in an effort to get you on board.</p> <p>Of course, nothing lasts forever, and the free checking benefits we&rsquo;ve all enjoyed for many years have started to suffer the death of a thousand cuts. Slowly but surely, free checking is going away and being replaced by certain terms and conditions that give you certain free features IF you maintain a set minimum balance, have a significant number of direct deposits, and so on.</p> <p>In fact, you can actually avoid Bank Of America&rsquo;s new debit card fee if maintain a minimum balance of $20,000. (Once again, we see wealth being rewarded.) You can also avoid the fee by simply using your debit card as an ATM card only. (See also: <a href="">4 Ways to Beat Debit Card Fees</a>)</p> <h3>So Why Did This New Fee Appear?</h3> <p>Well, it&rsquo;s a direct result of a bill passed by congress that was supposed to save consumers money. Of course, it never works out that way, does it?</p> <p>Banks have been making billions of dollars on swipe fees for many years now. These are<a href=""> fees charged to the merchant every time you swipe your debit card,</a> and they average around 44 cents per swipe.</p> <p>Or at least, they did. Merchants lobbied against the fees and won, saying that by lowering the price of these swipe fees, we, the customers, would get lower prices on goods and services.</p> <p>But when they passed the law, they didn&rsquo;t think of the ramifications of the ripple effect. It&rsquo;s also known as &ldquo;unintended consequences.&rdquo; By cutting these fees in half, billions of dollars have been taken away, annually, from the banks. Ouch. You know as well as I do that those losses are not going to be absorbed by the banks. The CEO, Brian Moynihan, isn&rsquo;t going to pay for it out of his <a href=" ">$950k salary or his $9 million in stock awards</a>.</p> <p>So who pays? You&rsquo;ve guessed it &mdash;&nbsp;we&rsquo;re the ones who pick up the tab. And the $5 per month debit card charge is only just the beginning; I guarantee it.</p> <p><img width="233" height="350" alt="" src="" /></p> <h3>Bank of America Is Not the Only One Raising Fees</h3> <p>JP Morgan Chase customers in Wisconsin have felt the pinch, with $3 per month being deducted for debit card usage. Sun Trust (Georgia) and Regions Financial Corp. (Alabama) are also charging $4 to $5 per month.</p> <p>And Wells Fargo recently announced that it will test a $3 per month debit card fee in five states &mdash; Oregon, New Mexico, Nevada, Georgia, and Washington.</p> <h3>What Does the Future Hold?</h3> <p>Fees. Lots of them.</p> <p>Right now, with the financial institutions just starting to roll out fees, you obviously have the <a href="">option to walk away</a>. But that won't be an option for long. If you want the conveniences that a typical bank offers, you&rsquo;re going to have to start paying for them. Banks across the U.S. will follow Bank Of America&rsquo;s lead, because they&rsquo;re losing out if they don&rsquo;t. And any banks who don&rsquo;t charge the fee will no doubt find other ways to make up the losses. You&rsquo;ll see free checking replaced by checking that requires maintenance fees. You&rsquo;ll get dinged if you go below a certain balance, or if you make more than a set number of purchases with your debit card each month.</p> <p>There will be tiered plans &mdash; $3 a month for 50 swipes, $15 for unlimited swipes. And why not? The cell phone industry is all about tiered pricing. And you&rsquo;ll have to pay for the privilege of online banking, automatic bill payments, even checking your balance on your phone. This is the future, and if everyone&rsquo;s doing it, so we really don&rsquo;t have an option other than to remove ourselves from the banking system and go back to the stone-age. Anyone for a mattress stuffed with cash?</p> <h3>And What About the Merchants Who Said They&rsquo;d Cut Prices?</h3> <p>That&rsquo;s a tough one to prove. Walmart has been rolling back prices for years, long before this bill came into effect. <a href="">Target</a>, Home Depot, Best Buy, you name it &mdash; they constantly claim to be slashing prices, so how can we tell if those savings are being passed on to us?</p> <p>Truth is, as consumers, we can&rsquo;t. I&rsquo;m not saying that the big corporations are going back on their word to pass on savings to the customers, I just can&rsquo;t prove that they are. I suspect the reality is somewhere in the middle, with some savings being passed on to us, and some money going back into the wage packets of CEOs and senior management.</p> <p>Sadly, it&rsquo;s just another example of the consumer being at the bottom of the hill&hellip;and we all know what rolls down hill.</p> <a href="" class="sharethis-link" title="Is Bank of America’s $5 Monthly Debit Card Fee Just the Beginning? " rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Paul Michael</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Banking Credit Cards Financial News ATM Bank of America banking fees debit card fees Fri, 07 Oct 2011 10:36:34 +0000 Paul Michael 733796 at Social Security Is Not a Ponzi Scheme <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/social-security-is-not-a-ponzi-scheme" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Elderly woman with baby" title="Elderly woman with baby" class="imagecache imagecache-250w" width="250" height="147" /></a> </div> </div> </div> <p>Once again, people are comparing Social Security to a Ponzi scheme. That's a bogus comparison. (See also:&nbsp;<a href="">Don't Despair Over Small Retirement Savings</a>)</p> <p>A Ponzi scheme is a lie. Named after Charles Ponzi, it's a fraudulent investment where the operators report fake profits &mdash; and then support those illusory profits by paying out cash from new investors. Ponzi schemes always collapse eventually, because they depend on an ever-increasing number of new investors to provide enough cash to make payments to the old investors.</p> <p>The reason that Social Security isn't a Ponzi scheme is that it isn't a lie. It keeps accurate books, attested to by a board of trustees and an actuary.</p> <p>What Social Security is, is an <em>inter-generational transfer</em>. To solve a problem (old-age poverty), we as a society decided to transfer some income from workers to the elderly.</p> <p>That worked pretty well for several decades. Then, in the early 1980s, the trustees realized that the baby boomers presented a problem. They were going to expect to receive a lot of money in two or three decades, but the workforce was going to be shrinking and there wouldn't be enough.</p> <p>That problem was fixed in 1983. Benefits for younger folks were cut slightly, Social Security taxes were increased slightly, and for the next three decades money was set aside, with a plan to pay it out when the baby boomers retired. That money will have all have been paid out in just a few decades &mdash; but that's fine, because the next generation doesn't have the same kind of bulge of retirees.</p> <p>See the difference? The Social Security Administration never pretended that investment returns were going to fund everyone's pension. They never lied and said that your contributions were waiting to pay your pension when you retired.</p> <p>The issue keeps getting raised &mdash; usually by people who object to the whole idea and say &quot;Ponzi scheme&quot; to inflame emotions. But anyone willing to do a little research comes up with the same answer every time &mdash; as, for example, our own Xin Lu did in her 2008 post <a href="">Is Social Security is Just a Grand Ponzi Scheme?</a></p> <p>Social Security: Not a Ponzi scheme; an inter-generational transfer.</p> <a href="" class="sharethis-link" title="Social Security Is Not a Ponzi Scheme" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="">Philip Brewer</a> and published on <a href="">Wise Bread</a>. Read more <a href=""> articles from Wise Bread</a>.</div></div> Financial News Retirement baby boomers scams social security Thu, 15 Sep 2011 10:24:17 +0000 Philip Brewer 701502 at